Is Carnival (CCL) a Potential Buy in August?

Cruise vacations have gained popularity in the past year among budget-conscious travelers seeking affordable travel options. However, U.S. cruise companies indicate that these itineraries' cost will increase in the upcoming months.

On the other hand, cruise companies are facing rising costs for labor, marketing, port, and freight, offsetting gains from higher ticket prices and strong demand.

Leading cruise company Carnival Corporation & plc (CCL) recently announced the issuance of conditional redemption notices for its $775 million 10.500% second-priority senior secured notes due 2026 and €425 million 10.125% second-priority senior secured notes due 2026.

This decision to redeem senior secured notes and engage in refinancing transactions might raise concerns given its already substantial debt burden. As of May 31, 2023, CCL’s long-term debt stood at $31.92 billion. While the company aims to reduce interest expenses and improve its financial outlook, relying on available cash for redemptions could potentially strain its liquidity in a challenging industry environment.

In view of the prevalent conditions, CCL could be a risky stock to own.

CCL’s Financial Performance: Analyzing Net Income, P/E Ratio, Gross Margin, and Current Ratio  

CCL’s trailing-12-month Net Income has experienced a steady decline in negative territory from August 2020 to May 2023. Highlights encompass:

• August 2020: The net income was recorded at -$7.59 billion.
• November 2020: There was an increase in net loss to $10.24 billion, representing the most substantial net loss within this period.
• February 2021: Slight increase in the negative value of the net income to -$11.43 billion.
• May 2021: It started to show signs of slight recovery to -$9.13 billion.
• August 2021: Continued stability is observed in the net loss with a figure of $9.10 billion.
• November 2021: Minor upward fluctuation to -$9.50 billion.
• February 2022: A modest decrease in net loss was recorded at $9.42 billion.
• May 2022: Indicated a minor recovery with a net loss of -$9.18
• August 2022: Observed significant recovery to -$7.12 billion.
• November 2022: Continued positive trend in reduction of net losses to -$6.09 billion.
• February 2023: Substantial decrease in net loss reaching $4.90 billion.
• May 2023: Most recent data shows further improvement in net loss figures to $3.47 billion.

Between August 2020 and May 2023, the company's net income fell by $4.12 billion, signifying a strong downswing overall. However, more recently, there has been a significant slowdown in loss acceleration, illustrating an apparent trend toward recovery. Please note that these values represent net losses due to the negative sign, not profits.

CCL’s Price/Earnings Ratio (P/E) has seen several fluctuations from August 2020 to May 2023. Key Observations:

• As of August 31, 2020, the P/E ratio was -1.86.
• It steadily declined to -3.32 by May 31, 2021.
• In August 2021, a slight uptick occurred, with the P/E at -3.20.
• An irregular fluctuation followed, reaching the lowest point of -6.51 on May 31, 2023.

Recent Trends:

• The latest May 31, 2023, data shows a P/E of -6.51.
• This represents a significant drop compared to the previous year, on May 31, 2022, when the P/E was -1.14.

Growth Rate:
Comparing the last value (-6.51) with the first one in the series (-1.86), there's an increase in the negative P/E value by approximately 7.5 across the measured period.  The downward trend, especially prominent in the last reported data, could potentially indicate the worsening financial health of the company.

Looking at CCL’s historical fluctuations and trend of its Gross Margin , a clear pattern emerges:

• In August 2020, CCL reported a gross margin of 11.7%.
• By November 2020, this had dropped sharply to -12.2%.
• It dipped even lower in February 2021, recording a gross margin of -336%.
• Its gross margin depreciated significantly, touching a low point of -1573% in May 2021.
• The figures started to recover, reaching -336.1% in August 2021 and continuing the upward trend to -112.9% by November 2021.
• Throughout 2022, there was a steady rise back into positive territory with gross margins of -58.4%, -29.8%, and -2.3% reported in February, May, and August, respectively.
• Nearing year-end, CCL's gross margin showed further improvement in November 2022 as it reached 7%
• Gross margin improved steadily in 2023, measuring 15.8% in February and ending at 23.5% by May 2023.

.In conclusion, while CCL suffered considerable depreciation in its gross margin during 2020 and much of 2021. However, it made substantial recoveries in gross margin throughout 2022 and into 2023.

The Current Ratio (CR) of CCL has exhibited significant fluctuations over the provided period (August 2020 to May 2023). Here is a summarized version of the trend and changes:

• From August 2020, with a ratio of 0.91, the CR escalated to its peak at 1.45 in February 2021.
• From this point, CCL experienced a generally declining trend, which reached its nadir in May 2023 when it recorded a CR of 0.52.
• There were periods of brief recovery, as seen in November 2021, when the CR increased from 0.94 in August to 0.97, and again from August 2022 to November 2022, when the ratio rose from 0.65 to 0.71.
• The most recently reported CR for CCL was 0.52 in May 2023 – a decrease compared with 0.64 in February 2023.

In terms of growth rate (measured from the first to the last value), the CR demonstrated a negative growth of approximately -42.9%. This suggests that CCL's ability to cover short-term liabilities with short-term assets has generally weakened over the observed period.

Tracking Carnival Corporation's Share Price Fluctuations: February to August 2023

The following is a description of the trend and the growth rate in the share price of CCL from February to August 2023:

• On February 10, 2023, the share price was valued at $11.2
• There was a marginal increase by February 17, 2023, as the share price rose to $11.67
• A downward trend emerged with the price falling to $10.91 on February 24, $10.72 on March 3, and $10.57 on March 10.
• The price saw a significant drop to $8.96 on March 17.
• Following this, there was a slow recovery, with the price reaching $9.07 on March 24, $9.68 on March 31, $9.78 on April 6, and $9.81 on April 14.
• The price decreased slightly once again to $9.57 on April 21 before hitting a low of $9.03 on April 28.
• Consistent growth was observed from May, escalating from $9.55 on May 5 to $15.82 on June 23.
• This upward trend heightened in July, with the price peaking at $18.97 on July 7 before experiencing a slight dip to $17.78 by August 8, 2023.

In general terms, CCL's share price from February to August 2023 initially exhibited a decreasing trend but started to recover from late March 2023. The growth accelerated notably starting in May and reached its peak in July before experiencing a slight decrease in early August. Here is a chart of CCL's price over the past 180 days.

Assessing CCL’S POWR Ratings

CCL has an overall D rating, translating to a Sell in our POWR Ratings system. It is ranked the last among the four stocks in the F-rated Travel – Cruises category.

Stocks to Consider Instead of Carnival Corporation (CCL)

Other stocks in the sector that may be worth considering are Playa Hotels & Resorts N.V. (PLYA), Bluegreen Vacations Holding Corp. (BVH) and Accor SA (ACCYY)-- they have better POWR Ratings.

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

3 Stocks to DOUBLE This Year >

CCL shares were trading at $17.44 per share on Wednesday afternoon, down $0.48 (-2.68%). Year-to-date, CCL has gained 116.38%, versus a 17.78% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

More...